Direct on-line mortgage auction network

ABSTRACT

The present invention provides a computerized (Internet, online) network for home mortgage borrowers to compete against each other and other mortgage companies (brokers) in an auction format for certain pools of funds. These funds are provided to the auction from the secondary mortgage market in pools on a daily (hourly) basis. The present invention provides qualified participants with a direct link to the secondary mortgage market, hence bypassing some middlemen (wholesalers and retailers) in the process. Participants go to a common Web site and complete a loan application. The participants then electronically submit the loan application to the common Web site. The loan application is then underwritten, and if approved, the participant is issued an approval code. With the approval code, the participant can then submit a bid at the auction. Subsequent to the approval of the bid, the borrower can close escrow at the interest rate and the bid price. The auction can change on a daily (hourly) basis, as pricing of the loan products is in real time figures.

CROSS-REFERENCE TO RELATED PATENT APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.10/013,019, filed on Nov. 30, 2001, which in turn claims priority toU.S. Provisional Application No. 60/250,108, filed on Dec. 1, 2000entitled “DIRECT ONLINE MORTGAGE AUCTION”, the entirety of which areincorporated by reference.

FIELD OF INVENTION

The present invention relates to a direct online mortgage auctionnetwork, and more particularly to provide a medium for an auctionnetwork designed to streamline processes in the primary and secondarymortgage market.

BACKGROUND OF THE INVENTION

The secondary mortgage market is the market in which existing mortgagesor mortgage-backed securities are bought and sold. Similar to othersecondary markets, the purpose of the secondary mortgage market is toprovide a channel to move funds from capital-surplus areas tocapital-deficit regions. Mortgage companies use this channel to bringtogether providers of capital (investors) and those needing such funds(homebuyers and homeowners) in all regions of the country.Traditionally, these mortgage companies serve at the retailpoint-of-sale for this channel. Consequently, they can provide mortgagesto a full range of homebuyers and homeowners and commercial enterprises.Point-of-sale mortgage providers may include mortgage brokers,commercial banks, thrifts, credit unions, savings and loan associations,savings banks, life insurance companies, and the like.

There are various institutions that facilitate the movement of funds forthe mortgage companies. These entities include

-   -   Federal National Mortgage Association (“Fannie Mae”),    -   Federal Home Loan Mortgage Corporation (“Freddie Mac”),    -   Government National Mortgage Association (“Ginnie Mae”),    -   And Private Conduits

These institutions purchase or securitize loans originated by mortgagecompanies. These purchases or securitizations recycle funds back to theoriginating mortgage company, allowing them to make loans to additionalhomebuyers.

In the last two decades, the secondary mortgage market has experiencedmajor growth, become increasingly sophisticated, and become even moreimportant as a source of funds for home mortgages (Source: MortgageBankers Association of America, 2001).

The traditional model for borrowers, as described above, has generallyresulted in a multi-layered middleman process. As a result, the processproduces interest rates, fees and a turnaround time higher thannecessary, especially for borrowers that are well-qualified.

In view of the growth of the secondary mortgage market, and theincreased accessibility of the Internet (World Wide Web), it would bedesirable to provide an improved network, namely a direct online auctionnetwork, which would facilitate access to conduits in the secondarymortgage market. This invention would serve this purpose.

SUMMARY OF THE INVENTION

It is an objective of the present invention to provide a direct onlinemortgage auction network, in order to provide a direct access for fundsin the secondary mortgage market to borrowers' and other mortgagecompanies.

The subject invention provides a computerized (Internet, online) networkor system for home mortgage borrowers and mortgage companies to competeagainst each other in an auction format for certain pools of funds. Thissystem is intended to be a component within an existing Web siteinfrastructure, whereby visitors can choose to participate in theauction model or select from other options available depending on thescope of the site. In one preferred embodiment, these funds are providedto the auction from the secondary market pools on a daily (or hourly)basis. This invention provides qualified borrowers and other mortgagecompanies (brokers) with a direct link to the secondary market, hencebypassing some middlemen (wholesalers and retailers) in the process.According to the present invention, direct access to an online mortgageauction system brings the availability of the secondary mortgage closerto the borrowers by streamlining the supply chain.

Borrowers or mortgage companies can go to a common Web site and completea loan application. They then electronically submit the loan applicationto the Web site. The loan application is then underwritten, and ifapproved, an approval code is issued. With the approval code, theparticipant can then place a bid at the auction. The item that theparticipant will be bidding on is the interest rate or yieldrequirements provided by the conduits in the secondary mortgage market.The participants' bidding price would be in form of loan fees or pointsthat they are willing to pay to obtain a mortgage at the posted rate.The auction can change periodically, as pricing of the loan products isin real time figures.

Other objects, features and advantages of the present invention willbecome apparent from the following detailed description, when taken inconjunction with the accompanying drawings.

BRIEF DESCRIPTION OF THE DRAWINGS

The accompanying drawings, which are incorporated in and form a part ofthis specification, illustrate embodiments of the invention, where likenumerals identify like components, and, together with the followingdetailed description, serve to explain the principles of the invention:

FIGS. 1-3 show display pages for a participant using the direct onlinemortgage auction network of the present invention.

FIG. 4 shows a flow diagram of the steps involved with the direct onlinemortgage auction network of the present invention.

FIG. 5 shows a block diagram of a direct online mortgage auction networkaccording to the present invention.

DETAILED DESCRIPTION OF THE INVENTION

Reference will now be made in detail to the preferred embodiments of theinvention, examples of which are illustrated in the accompanyingdrawings. While the invention will be described in conjunction with thepreferred embodiments, it will be understood that they are not intendedto limit the invention to those embodiments. On the contrary, theinvention is intended to cover alternatives, modifications andequivalents, which may be included within the spirit and scope of theinvention as defined by the appended claims.

The present invention provides a computerized (Internet, online) networkor system for home mortgage borrowers and mortgage companies (brokers)to compete against each other in an auction format for certain pools offunds. These funds are provided to the auction from the secondary marketin pools on a daily (hourly) basis. The present invention providesqualified borrowers with a direct link to the secondary market, hencebypassing some middlemen in the process. These middlemen are wholesalersand retailers.

Borrowers and mortgage companies (brokers) go to a common Web site andcomplete a loan application. They then electronically submit the loanapplication to the common web site. The loan application is thenautomatically underwritten, using industry standard automatedunderwriting software (such as Fannie Mae's DU system, Freddie Mac's LPsystem, or other available underwriting systems), and if approved, anapproval code is issued. With the approval code, the participant canplace a bid in the auction. The auction can change on a daily (hourly)basis, as pricing of the loan products is in real time figures.

FIG. 1 shows the first part of the direct online mortgage auctionprocess according to the present invention. FIG. 1 provides the auctionnumber, the base interest rate available to the bidders, the currentlist of accepted bidders, and the steps that the participants have totake to place a bid. If the participant does place a bid, a new pageappears, as shown in FIG. 2.

FIG. 2 clearly spells out what the participants are bidding for, and theoptions to various interest rates. It also points out what theparticipants would have if they are a winning bidder.

FIG. 3 shows the final page in the auction process, which is aconfirmation of the winning bid of the participant. Once accepted by thebidder, the bidder would be placed in the approved bidder list, as shownin FIG. 1.

If the pool of funds is exhausted, new bidders would have to increasethe points they are willing to pay. Such action would replace the lowestbid. In the case of multiple and similar low bids, the last bidder ofthe lowest bid price in the pool is eliminated and replaced by the newhigher bid. With this process, the auction continues until the deadlinearrives. The winning bidders are then notified, and are given a fixedamount of time to close the transaction.

In the example shown in FIG. 1, the particular auction number assignedto the transaction is number 012698F. The example product is a 30-yearfixed rate loan, with a minimum loan amount of $50,000, and a maximumloan amount of $252,700. The base rate is 7.25%. As illustrated, theapproved participants are bidding on points only, as shown in FIG. 1.

In FIG. 1, the display shows that the auction begins on Oct. 25, 2000,at 9:51 AM, and that the auction ends at Oct. 26, 2000, at 8:26 AM. Afurther requirement shown in FIG. 1 is that the loan must close by Dec.5, 2000, at 12:00 PM.

The total funds available in the example shown in FIG. 1 are$10,000,000, and the remaining amount in the example is $3,235,300.Also, the participant must have an FN prefix in the approval code inorder to participate in the auction.

In the example shown in FIG. 1, the participant is bidding on a baseinterest rate of 7.25%. As displayed in FIG. 1, the bidder is advisedthat he need only bid on the base rate, but may choose other rate andpoint combinations. These other rate and point combinations are offeredbased on corresponding yield requirements from the secondary market. Inother words these rate and point combinations will produce the sameyield for the mortgage in the secondary market. Bidders in theparticular auction have rate options as well. The bidder is prompted toclick the options button shown in FIG. 1 to see what other rate/pointoptions will be available to him/her if he/she is a successful bidder.Options with lower rates will include additional points that must bepaid at closing. Options with higher rates will have points rebated atclosing. The bid price, which will be in points, is added to the pointsthat correspond to the participant's selected interest rate. Bids are in0.125 increments.

As displayed in FIG. 1, the minimum required bid for the interest rateof 7.25% is 1.25 origination points. The final bid may be subject toadd-ons, if applicable, and the bidder is prompted to see if his loan issubject to any standard add-ons, as shown in FIG. 1. For example, oneadd-on may involve properties that are not owneroccupied.

The bidder is prompted, as shown in FIG. 1, to complete all thenecessary bid information if he/she wished to bid in that particularauction, which includes the entry of the approval code, entering thepoints he/she would like to pay on the particular interest rate of7.25%, calculating the APR, viewing different options, viewing otherlender fees, viewing applicable add-ons, and finally whether to place orcancel the bid. The winning bidders will qualify for their requestedportion of the funds available in the particular auction, for theproduct loan shown in FIG. 1.

If the bidder does decide to place a bid from FIG. 1, a new pageappears, as shown in FIG. 2, which is based upon the same auction numberand product information shown in FIG. 1.

FIG. 2 clearly shows what the bidders are bidding for, and the optionsfor various interest rates, and shows what they would obtain if they arethe winning bidder. In the particular example shown in FIG. 2, thebidder has chosen a rate of 7.25%, with a base loan fee of 1.25 pointsfor a loan amount of $226,000. In addition to the loan fee shown in FIG.2, there are the additional add-ons for a non-owner occupied property,which adds 1.50 to the origination points (a total of 2.75 points).

In the example shown in FIG. 2, the interest rate of 7.25% with an APRof 7.578% is provided as the winning bidder. The bidder, as shown inFIG. 2, also will be allowed any of the following options:

-   -   6.875%+4.25 points APR 7.352    -   7.00%+3.75 points APR 7.428    -   7.125%+3.25 points APR 7.503

Also, the bidder in FIG. 2 will be required to close his escrow by Dec.5, 2000 at 12:00 PM, otherwise his rate will expire and he will besubject to cancellation fees.

In the example shown in FIG. 2, the bidder is prompted to click on theappropriate button to complete his bid. By clicking the “I Agree”button, the bidder will be asked to acknowledge the cancellation feesassociated with a cancelled transaction. The bidder can click the“Cancel My Bid” button to cancel his bid, and the transaction ends.

FIG. 3 shows an example of a bid confirmation for the same auctionnumber and products shown in FIGS. 1 and 2.

In FIG. 3, the bidder is prompted to understand that he is ready toaccept the terms shown in the example of FIG. 3, should his bid beaccepted. In the example of FIG. 3, the loan amount is $226,000, thebase rate is 6.875%, with total points of 4.25 APR 7.25%, and a closingdate of Dec. 5, 2000 at 12:00 PM (this is one of the options shown inFIG. 2, as described above).

The bidder in FIG. 3, when finalizing his bid by clicking the “FinalizeMy Bid” button, is prompted to understand that escrow must close nolater than Dec. 5, 2000 at 12″00 PM, and that should escrow not close bythat date, the bidder understands that, in the example, there is a 1%cancellation fee, or $2,260. The bidder in FIG. 3 can cancel thetransaction by clicking the “Cancel My Bid” button.

Once the bidder accepts bid transaction in FIG. 3, the bidder is placedin the approved bidder list.

As previously described, if the pool of funds is exhausted, new bidderswould have to increase the points they are willing to pay. This actionwould replace the lowest bidder (and in the case of multiple low bidsthat are similar, they would be replaced in reverse chronological orderby date of bid). The auction process continues until the deadlinearrives. The winning bidders are notified, and are given the deadline toclose the transaction.

FIG. 4 shows an illustrative flow process of a direct online mortgageaccording to the present invention.

In FIG. 4, at step 30, the participant visits the host Web site. Theparticipant has the option of visiting a traditional model at step 32.The traditional model method is for hard to qualify borrowers orborrowers that do not want to participate in an auction format. Ingeneral, with a traditional model, the rates, fees and turnaround may behigher.

FIG. 4 assumes that the participant visits the auction model at step 34.As has been described in conjunction with FIGS. 1-3, the participantcompletes the loan application online, at step 40. The online loanapplication is either denied at step 42, approved at step 44, orreferred to the traditional model at step 46.

If the loan application is approved at step 44, the process goes on toissue a pre-approval at step 50. If the application cannot bepre-approved at step 50, the participant is referred to the traditionalmodel.

With the issuance of the pre-approval at step 50, the process goes toa—screening/validation at step 52. If the borrower does not pass thescreening/validation at step 52, the participant is referred to thetraditional model. If the borrower passes the screening/validation atstep 52, the participant goes to step 54, in which he goes to the Website and bids in the auction of his choice, such as shown in FIGS. 1-3.If the bid is good at step 64 in FIG. 4, the auction closes at step 66,and subsequently, the loan proceeds to a closing. At step 68, the loanis sold through a suitable mortgage conduit, such as FNMA, FHLMC orother conduit.

When bids are not accepted (at step 56 in FIG. 4) because theparticipant is outbid by other bidders, the process goes to step 60,where the participant can decide to bid again, to wait for the nextauction, or to go back to the traditional model.

As shown in FIG. 4, large funding commitments are obtained fromsecondary mortgage conduits (for example, FNMA, FHLMC, or other conduit)for the purposes of the auction on a regular basis. Participants musthave an approval through available automated underwriting, as describedabove, in order to be able to participate in the auctions. Newcommitments are purchased as auctions come to a close.

FIG. 5 shows a block diagram of a direct online mortgage auction networkaccording to the present invention. In FIG. 5, a plurality of potentialparticipants P1, P2, . . . , PN are each directly connected to a DirectOnline Mortgage Auction Web Site. As described in conjunction with theabove description of FIGS. 1-4, the plurality of participants P1, P2, .. . , PN will, when approved by the automated approval process describedabove with FIGS. 1-4, bid against one another for a winning bid(s). Thewinning bid(s) then proceed, as shown in FIG. 4, to step 66, where theauction closes, the loan is processed, and, at step 68, the loan is soldto FNMA, FHLMC, or some other conduit.

The foregoing descriptions of specific embodiments of the presentinvention have been presented for purposes of illustration anddescription. They are not intended to be exhaustive or to limit theinvention to the precise forms disclosed, and it should be understoodthat many modifications and variations are possible in light of theabove teaching. The embodiments were chosen and described in order tobest explain the principles of the invention and its practicalapplication, to thereby enable others skilled in the art to best utilizethe invention and various embodiments with various modifications as aresuited to the particular use contemplated. It is intended that the scopeof the invention be defined by the claims appended hereto and theirequivalents.

1. A direct online mortgage auction network comprising: a mortgageauction network Web site, the network Web site providing secondarymarket mortgage pools of secondary market funds; and a plurality ofqualified participants having direct online access to the network Website, the participants seeking to qualify for secondary market mortgagesfrom the pools of funds by bidding between each other, such that one ormore of the bidding participants qualifies for a portion of thesecondary market mortgage fund.